Almost one quarter of American children live in poverty, and the effects of poverty on these children are mediated by many family and social conditions. Poverty affects parenting practices and the home environment, with consequential effects on child adjustment and functioning. Changes in income cause changes in parenting and the quality of the home environment, suggesting that these qualities are affected by income rather than being fixed characteristics of people living in poverty. Public policies can affect the resources available to families, affecting the quality of the environments of young children. Income supports to help assure basic needs are important. Universal subsidies for all children should replace the current system of tax advantages, and subsidies that provide access to safe and high quality child care are especially important. Funding for public broadcasting could help make television a source of education and quality entertainment for children. (Contains 4 figures and 49 references.) (SLD)